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03/26/2006

Comment on the French Employment Law Riots-BECKER

The riots by students and union members against the new French labor law can be understood better if the law is placed in the context of the French labor market for the past couple of decades. France has had low rates of employment, and unemployment rates of about 10 per cent for the past fifteen years. Some economists outside of France have blamed this to a significant degree on its rigid labor market. I wrote an Op Ed piece in the early 1990's for Le Monde, the prominent left wing French newspaper, arguing that regulations which made it costly to hire and discharge workers, and high taxes on labor, helped to explain both the low employment and high unemployment.
French politicians, the middle and upper classes, and for a while most of their economists (one French economist replied in Le Monde to my article) rejected this explanation. They claimed that the proposed remedies were too Anglo-Saxon, and that the bad labor market situation was temporary, perhaps due to insufficient aggregate demand for labor.
As sluggish employment continued throughout that decade and into the 21st century not only in France but also in Germany, Italy, and Spain, European economists and some politicians began to change their views. They concluded that lower taxes on labor, greater flexibility in hiring and firing, and other changes were necessary to produce the growth in employment that had occurred in both Great Britain and the United States.
Germany under the Social Democratic leadership of Gerhard Shroeder significantly shortened the duration of unemployment compensation, and introduced other incentives for workers to look for jobs and for companies to hire them. In France, however, the resistance to change has been greater, and the Socialists while they were in power even went backwards by introduced a 35 hours workweek that was supposed to spread a limited number of jobs among more workers. Instead, it appears to have reduced employment. The Conservatives under President Jacques Chirac and Prime Minister Dominique de VIllepin have been slightly better. They modified the 35-hours law, allowed a two-year probationary period for employees at firms with less than 20 employees, followed Spain by introducing short-term employment contracts, and made a few other changes.
Unemployment of young persons in most countries tends to be about twice the overall unemployment rate, and so it is for France. Youth unemployment rate is about 22 per cent, and fewer than 30 per cent of French youth between ages 15-24 have jobs, which is half the rate in Great Britain. Unemployment rates of educated persons are generally much below those of the less educated, which explains why the low educated Muslim youth have unemployment rates well in excess of 30 per cent.
In order to improve economic opportunities for young persons, the law that led to these riots extends the more generous employment rules for small firms to young workers. Under this new law (not yet in effect), workers under age 26 could be discharged within the first two years of their employment without employers having to give any cause.
It might seem strange that these riots have been led by students and union members, groups that are well treated by the French system. University students are favored both because they pay only token tuition, and they have relatively good job prospects after they graduate. Nevertheless, among other acts, students occupied the Sorbonne for three days until they were forcibly evicted.
Posner and I had indicated in our earlier discussion of the riots by young French Muslims that riots are not easy to predict by economic and social variables like unemployment, economic progress, or the degree of discrimination. Still, one line of analysis may explain the heavy participation of both university students and unionists in the current riots. Employment by small companies and of young workers constitutes only a fraction of total employment. Therefore, to make a large dent on the economy's performance, the greater flexibility given to small companies and for employment of young workers has to be followed by other laws that apply to all employees. These include much greater overall flexibility in hiring and firing, lower minimum wages, and reduced taxes on employment.
Therefore, if this law is allowed to be implemented, it is likely to be followed by laws that reduce the employment advantages between the better educated and unionized "insiders" who have good pay and stable employment, and the less educated younger and immigrant workers who tend to be unemployed and have uncertain job tenure. This is why the conflict between employment insiders and employment outsiders can help explain why college students, who are future insiders, and unionists, who are current insiders, make up the bulk of those rioting. Since insiders make up a majority of all employees, it is not surprising that apparently most of the French people want the government to withdraw this law.
Although this explanation might be accepted for union involvement in these protests, does it help understand the participation of students since university students all over the world feel a responsibility to protest and sometimes riot? But consider that students have not taken over the Sorbonne since the famous 1968 student riots that brought down the de Gaulle government. I agree that students like an occasional riot, but usually a cause celebre is needed to galvanize them into action. The new youth labor law was the catalyst this time. That the riots may help university graduates and other insiders by discouraging politicians from taking away some of their advantages is surely an important added bonus.

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